What Early Financial Signals Are Emerging Now?

In the current global financial system, several early warning signs warrant attention. These signs, based on historical crisis patterns and current economic data, primarily concern macroeconomic imbalances, financial market anomalies, policy and external shocks, and changes in investor behavior. When a financial crisis looms, countries often adopt different responses. Some, like the United States, choose proactive measures, while others, such as South Korea, may choose to avoid it as much as possible, attempting to gradually resolve minor issues. However, regardless of the chosen approach, a crisis is ultimately inevitable. To better cope with a potential financial crisis, we need to anticipate its signs in advance so that we can take action before it occurs. So, what signs indicate an impending financial crisis?


Before a financial crisis erupts, a series of signs typically emerge, often indicating instability and the accumulation of risks within the economic system.

Here are some key signs:

  1. Weak Economic Growth

  • Core Manifestation: Slowing economic growth, or even stagnation or negative growth.
  • Analysis: When a country or region's economic growth loses momentum, the old economic model becomes unsustainable, and new growth drivers have not yet emerged, the economic system is prone to difficulties.
  • Impact: Weak Economic GrowthThis leads to declining corporate profits, rising unemployment, and a series of chain reactions.

  1. Credit Problems:

  • Key Manifestations: Excessive bank lending, high levels of corporate and personal debt, and increased default risk.
  • Analysis: To stimulate economic growth, governments or banks may adopt loose credit policies, causing a large influx of funds into the market. Businesses and individuals then leverage their investments and consumption. However, when economic growth cannot support these debts, default risk is exposed.
  • Impact: Credit problems can destabilize financial markets, leading to broken capital chains and triggering a financial crisis.

  1. Asset Price Bubbles:

  • Key Manifestations: Significant increases in asset prices, such as in the stock market and real estate market, exceeding the support of economic fundamentals and profit growth.
  • Analysis: Against the backdrop of weak economic growth and loose credit, investors often seek high-risk, high-return investment opportunities, leading to irrational increases in asset prices.
  • Impact: Once an asset price bubble bursts, it will cause heavy losses for investors, deteriorate the balance sheets of financial institutions and individuals, and ultimately trigger a financial crisis.

  1. Unstable International Economic Environment

  • Core Manifestation: External factors such as international trade disputes and geopolitical conflicts lead to instability in the international economic environment.
  • Analysis: In the context of globalization, national economies are closely interconnected, and instability in the international economic environment directly affects the stability of the domestic economy.
  • Impact: Unstable international economic conditions may lead to capital outflows, exchange rate fluctuations, and thus exacerbate risks in the domestic financial market.

  1. Declining Public Confidence

  • Core Manifestation: Consumer confidence in the economic outlook has declined, leading to increased savings and decreased consumption.
  • Analysis: Factors such as sluggish economic growth, rising unemployment, and asset price bubbles all contribute to public anxiety about the economic outlook.
  • Impact: Declining public confidence further suppresses consumption and investment, increasing the risk of economic recession.


Regarding macroeconomic imbalances

Global macro leverage ratios remain high, with sectoral debt as a percentage of GDP exceeding safe thresholds. For example, the US household leverage ratio was still close to 80% in 2023, corporate debt reached a record high, and emerging market external debt growth exceeded 20% for several consecutive quarters. This imbalance in external debt ratios may amplify risks. Simultaneously, asset prices are decoupled from fundamentals. Global stock market price-to-earnings ratios are at historical highs, localized bubbles have emerged in the real estate market, and the volatility of risky assets such as Bitcoin has increased significantly. Off-exchange margin financing has rebounded somewhat. Furthermore, the real economy shows a tendency to "decouple from the real economy," with manufacturing investment growth consistently lagging behind real estate or financial investment. The gap between financing costs for SMEs and large enterprises is widening, reflecting resource misallocation.

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